UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                For the quarterly period ended: January 31, 2007

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from ______________________ to ______________________

                         Commission File Number: 0-11088

                              ALFACELL CORPORATION
             (Exact name of registrant as specified in its charter)

         Delaware                                        22-2369085
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
organization)

               225 Belleville Avenue, Bloomfield, New Jersey 07003
               (Address of principal executive offices) (Zip Code)

                                 (973) 748-8082
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
     (Former name, former address, and former fiscal year, if changed since
                                  last report.)

      Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

      Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definitions of
"accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange
Act.

   Large Accelerated Filer |_| Accelerated Filer |X| Non-accelerated Filer |_|

      Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

      The number of shares of Common Stock, $.001 par value, outstanding as of
March 7, 2007 was 45,103,401 shares.

<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
        --------------------

                            CONDENSED BALANCE SHEETS
                       January 31, 2007 and July 31, 2006


<TABLE>
<CAPTION>
                                                                                        January 31,       July 31,
                                                                                            2007            2006
                                                                                        (Unaudited)     (See Note 1)
                                                                                        -----------     ------------
                                                 ASSETS
                                                 ------
<S>                                                                                     <C>             <C>
Current assets:
   Cash and cash equivalents                                                            $  8,024,060    $ 11,518,540
   Other current assets                                                                      237,758          67,090
                                                                                        ------------    ------------
        Total current assets                                                               8,261,818      11,585,630

Property and equipment, net                                                                   76,546          69,928

Loan receivable, related party                                                               175,633         170,870
                                                                                        ------------    ------------

        Total assets                                                                    $  8,513,997    $ 11,826,428
                                                                                        ============    ============

                                     LIABILITIES AND STOCKHOLDERS' EQUITY
                                     ------------------------------------

Current liabilities:
   Accounts payable                                                                     $    365,782    $  1,286,170
   Accrued expenses                                                                        1,151,339       1,307,255
                                                                                        ------------    ------------

        Total liabilities                                                                  1,517,121       2,593,425
                                                                                        ------------    ------------

Stockholders' equity:
   Preferred stock, $.001 par value;
      Authorized and unissued, 1,000,000 shares at January 31, 2007 and July 31, 2006             --              --

   Common Stock, $.001 par value;
      Authorized 100,000,000 shares at January 31, 2007 and July 31, 2006;
      Issued and outstanding, 45,103,401 shares at January 31, 2007 and 44,289,161
        shares at July 31, 2006                                                               45,103          44,289
   Capital in excess of par value                                                         94,566,635      92,505,325
   Deficit accumulated during development stage                                          (87,614,862)    (83,316,611)
                                                                                        ------------    ------------

        Total stockholders' equity                                                         6,996,876       9,233,003
                                                                                        ------------    ------------

        Total liabilities and stockholders' equity                                      $  8,513,997    $ 11,826,428
                                                                                        ============    ============
</TABLE>

See accompanying notes to condensed financial statements.


                                        2
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                       CONDENSED STATEMENTS OF OPERATIONS

              Three and six months ended January 31, 2007 and 2006,
                       and the Period from August 24, 1981
                     (Date of Inception) to January 31, 2007

                                   (Unaudited)

<TABLE>
<CAPTION>
                                          Three Months Ended               Six Months Ended           August 24, 1981
                                              January 31,                     January 31,                (Date of
                                              -----------                     -----------              Inception) to
                                        2007             2006            2007             2006        January 31, 2007
                                        ----             ----            ----             ----        ----------------
                                                    (as restated)                    (as restated)
                                                    -------------                    -------------
<S>                                 <C>             <C>              <C>             <C>               <C>
Revenue:
    Sales                           $         --    $          --    $         --    $          --     $     553,489
    Investment income                     98,539           24,053         221,872           56,048         1,900,079
    Other income                              --               --              --               --            99,939
                                    ------------    -------------    ------------    -------------     -------------
 Total revenue                            98,539           24,053         221,872           56,048         2,553,507
                                    ------------    -------------    ------------    -------------     -------------
Costs and expenses:
    Cost of sales                             --               --              --               --           336,495
    Research and development           1,472,578        1,501,082       3,042,763        2,723,094        58,310,010
    General and administrative         1,061,743          966,741       1,987,781        1,633,089        30,630,204
    Interest:
        Related parties, net                  --               --              --               --         1,147,547
        Others                                --               10              46               20         2,874,122
                                    ------------    -------------    ------------    -------------     -------------
Total costs and expenses               2,534,321        2,467,833       5,030,590        4,356,203        93,298,378
                                    ------------    -------------    ------------    -------------     -------------

Loss before state tax benefit         (2,435,782)      (2,443,780)     (4,808,718)      (4,300,155)      (90,744,871)

State tax benefit                        510,467               --         510,467          317,382         3,130,009
                                    ------------    -------------    ------------    -------------     -------------

Net loss                            $ (1,925,315)   $  (2,443,780)   $ (4,298,251)   $  (3,982,773)    $ (87,614,862)
                                    ============    =============    ============    =============     =============

Loss per basic and diluted common
  share                             $      (0.04)   $       (0.07)   $      (0.10)   $       (0.11)
                                    ============    =============    ============    =============

Weighted average number of shares
  outstanding                         44,846,064       36,734,042      44,595,902       36,663,531
                                    ============    =============    ============    =============
</TABLE>


See accompanying notes to condensed financial statements.


                                        3
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                       CONDENSED STATEMENTS OF CASH FLOWS

                   Six months ended January 31, 2007 and 2006,
                       and the Period from August 24, 1981
                     (Date of Inception) to January 31, 2007

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                        Six Months Ended                  August 24, 1981
                                                                          January 31,                   (Date of Inception)
                                                                          -----------                            to
                                                                   2007                  2006             January 31, 2007
                                                                   ----                  ----             ----------------
                                                                                    (As restated)
                                                                                    -------------
<S>                                                            <C>                   <C>                    <C>
Cash flows from operating activities:
  Net loss                                                     $ (4,298,251)         $ (3,982,773)          $ (87,614,862)
  Adjustments to reconcile net loss to
     net cash used in operating activities:
    Gain on sale of marketable securities                                --                    --                 (25,963)
    Depreciation and amortization                                    19,175                13,892               1,639,152
    Loss on disposal of property and equipment                           --                    --                  18,926
    Issuance of common stock, stock options and
       warrants for services rendered                             1,240,718               941,358               9,446,995
    Amortization of debt discount                                        --                    --                 594,219
    Amortization of deferred compensation                                --                    --              11,442,000
 Changes in assets and liabilities:
    (Increase) decrease in other current assets                    (170,668)              116,900               (297,625)
    Increase in loan receivable-related party                        (4,763)               (4,764)               (79,582)
    Increase in interest payable-related party                           --                    --                 744,539
    (Decrease) increase in accounts payable                        (920,388)              437,239                 872,417
    Increase in accrued payroll and expenses,
      related parties                                                    --                    --               2,348,145
    (Decrease) increase in accrued expenses                        (155,916)              269,361               1,870,223
                                                               ------------          ------------           -------------
    Net cash used in operating activities                        (4,290,093)           (2,208,787)            (59,041,416)
                                                               ------------          ------------           -------------
Cash flows from investing activities:
    Purchase of marketable equity securities                             --                    --               (290,420)
    Purchase of short-term investments                                   --                    --             (1,993,644)
    Proceeds from sale of marketable equity securities                   --                    --                 316,383
    Proceeds from sale of short-term investments                         --                    --               1,993,644
    Purchase of property and equipment                             (25,793)               (8,503)              (1,557,931)
    Patent costs                                                         --                    --                (97,841)
                                                               ------------          ------------           -------------
Net cash used in investing activities                               (25,793)               (8,503)            (1,629,809)
                                                               ------------          ------------           -------------

                                                                                                              (continued)
</TABLE>

See accompanying notes to condensed financial statements.


                                        4
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                  CONDENSED STATEMENTS OF CASH FLOWS, Continued

                   Six months ended January 31, 2007 and 2006
                       and the Period from August 24, 1981
                     (Date of Inception) to January 31, 2007

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                      Six Months Ended           August 24, 1981
                                                                                         January 31,                 (Date of
                                                                                         -----------              Inception) to
                                                                                    2007           2006         January 31, 2007
                                                                                    ----           ----         ----------------
                                                                                              (As restated)
                                                                                              -------------
<S>                                                                            <C>              <C>               <C>
Cash flows from financing activities:
    Proceeds from short-term borrowings                                        $         --     $        --       $    874,500
    Payment of short-term borrowings                                                     --              --           (653,500)
    Increase in loans payable - related party, net                                       --              --          2,628,868
    Proceeds from bank debt and other long-term debt, net of
       costs                                                                             --              --          3,667,460
    Reduction of bank debt and long-term debt                                            --              --         (2,966,568)
    Proceeds from issuance of common stock, net                                     (31,344)             --         51,702,892
    Proceeds from exercise of stock options and warrants, net                       852,750         671,485         12,727,640
    Proceeds from issuance of convertible debentures, related party                      --              --            297,000
    Proceeds from issuance of convertible debentures,
       unrelated party                                                                   --              --            416,993
                                                                               ------------     -----------       ------------
Net cash  provided by financing activities                                          821,406         671,485         68,695,285
                                                                               ------------     -----------       ------------
Net increase (decrease) in cash and cash equivalents                             (3,494,480)     (1,545,805)         8,024,060
Cash and cash equivalents at beginning of period                                 11,518,540       4,462,951                 --
                                                                               ------------     -----------       ------------
Cash and cash equivalents at end of period                                     $  8,024,060     $ 2,917,146       $  8,024,060
                                                                               ============     ===========       ============
Supplemental disclosure of cash flow information - interest paid               $         46     $        20       $  1,714,176
                                                                               ============     ===========       ============
Noncash financing activities:
    Issuance of convertible subordinated debenture for loan payable to
       officer                                                                 $         --     $        --       $  2,725,000
                                                                               ============     ===========       ============
    Issuance of common stock upon the conversion of convertible subordinated
       debentures, related party                                               $         --     $        --       $  3,242,000
                                                                               ============     ===========       ============
    Conversion of short-term borrowings to common stock                        $         --     $        --       $    226,000
                                                                               ============     ===========       ============
    Conversion of accrued interest, payroll and expenses by related parties
       to stock options                                                        $         --     $        --       $  3,194,969
                                                                               ============     ===========       ============
    Repurchase of stock options from related party                             $         --     $        --       $   (198,417)
                                                                               ============     ===========       ============
    Conversion of accrued interest to stock options                            $         --     $        --       $    142,441
                                                                               ============     ===========       ============
    Conversion of accounts payable to common stock                             $         --     $        --       $    506,725
                                                                               ============     ===========       ============

                                                                                                                   (continued)
</TABLE>

See accompanying notes to condensed financial statements.


                                        5
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                  CONDENSED STATEMENTS OF CASH FLOWS, Continued

                   Six months ended January 31, 2007 and 2006
                       and the Period from August 24, 1981
                     (Date of Inception) to January 31, 2007

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                            Six Months Ended          August 24, 1981
                                                                               January 31,                (Date of
                                                                               -----------             Inception) to
                                                                          2007            2006       January 31, 2007
                                                                          ----            ----       ----------------
                                                                                     (As restated)
                                                                                     -------------
<S>                                                                     <C>            <C>             <C>
    Conversion of notes payable, bank and accrued interest to
       long-term debt                                                   $      --      $      --       $  1,699,072
                                                                        =========      =========       ============
    Conversion of loans and  interest  payable,  related  party and
       accrued payroll and expenses, related parties to long-term
       accrued payroll and other, related party                         $      --      $      --       $  1,863,514
                                                                        =========      =========       ============
    Issuance of common stock upon the conversion of
        convertible subordinated debentures, other                      $      --      $      --       $  1,584,364
                                                                        =========      =========       ============
    Issuance of common stock for services rendered                      $      --      $      --       $      2,460
                                                                        =========      =========       ============
    Issuance of warrants with notes payable                             $      --      $      --       $    594,219
                                                                        =========      =========       ============
</TABLE>

See accompanying notes to condensed financial statements.


                                        6
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

      In  the  opinion  of  management,  the  accompanying  unaudited  condensed
financial statements of Alfacell Corporation  ("Alfacell" or the "Company") have
been prepared in accordance with U.S. generally accepted  accounting  principles
("GAAP") for interim  financial  information  and with the  instructions to Form
10-Q and Rule 10-01 of Regulation S-X.  Accordingly,  they do not contain all of
the  information  and  notes  required  by  U.S.  GAAP  for  complete  financial
statements.  In  the  opinion  of the  management,  the  accompanying  unaudited
condensed interim financial  statements  contain all adjustments  (consisting of
normal  recurring   adjustments)  necessary  to  present  fairly  the  Company's
financial  position as of January 31, 2007 and the results of its operations for
the three and six months  ended  January 31, 2007 and 2006,  and the period from
August 24, 1981 (date of inception) to January 31, 2007,  and its cash flows for
the six months ended  January 31, 2007 and 2006,  and the period from August 24,
1981 (date of inception) to January 31, 2007.  The results of operations for the
three and six months ended  January 31, 2007 are not  necessarily  indicative of
operating  results for fiscal 2007 or future interim periods.  The July 31, 2006
condensed  balance  sheet  presented  herein has been  derived  from the audited
financial  statements  included in the  Company's  Form 10-K for the fiscal year
ended July 31, 2006, filed with the Securities and Exchange Commission.

      Certain footnote  disclosures  normally  included in financial  statements
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States of America  have been  omitted in  accordance  with the rules and
regulations of the Securities and Exchange  Commission.  The condensed financial
statements  in this  report  should be read in  conjunction  with the  financial
statements and notes thereto included in the Form 10-K for the fiscal year ended
July 31, 2006.

      The Company is a  development  stage  company as defined in  Statement  of
Financial  Accounting  Standards No. 7, "Accounting and Reporting by Development
Stage  Enterprises".  The Company is devoting  substantially  all of its present
efforts to developing new drug products and, accordingly, no significant revenue
has been generated as the planned principal operations have not yet commenced.

      The  Company  has  reported  net losses of  approximately  $1,925,000  and
$4,298,000 for the three and six months ended January 31, 2007, respectively and
$7,810,000,  $6,462,000  and  $5,070,000 for the the fiscal years ended July 31,
2006, 2005 and 2004, respectively.  The loss from date of inception,  August 24,
1981, to January 31, 2007 amounts to approximately $87,615,000.

      The Company's long-term continued operations will depend on its ability to
raise additional funds through various potential sources such as equity and debt
financing,  collaborative agreements, strategic alliances, sale of tax benefits,
revenues from the commercial sale of  ONCONASE(R),  licensing of its proprietary
RNase technology and its ability to realize revenues from its technology and its
drug  candidates  via  out-licensing  agreements  with  other  companies.   Such
additional  funds may not become  available  as the  Company may need them or be
available  on  acceptable  terms.  Until and  unless  the  Company's  operations
generate  significant  revenues,   the  Company  expects  to  continue  to  fund
operations   primarily  from  equity  financing  and  through  the  exercise  of
outstanding  options and warrants and the sale of current and  potential  future
tax benefits.  There can be no assurance  that the Company will be able to raise
the capital it needs on terms which are acceptable, if at all. As of January 31,
2007,  management believes that the Company's cash balance will be sufficient to
fund its  operations  through  its fiscal year ending July 31, 2008 based on its
expected level of expenditures.


                                        7
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION, (continued)

      The Company will continue to incur costs in conjunction  with its U.S. and
foreign  registrations  for marketing  approval of  ONCONASE(R).  The Company is
currently in discussions with potential  strategic  alliance partners to further
the development  and marketing of ONCONASE(R) and other related  products in its
pipeline. However, it cannot be sure that any such alliances will materialize.

2. EARNINGS (LOSS) PER COMMON SHARE

      Basic earnings (loss) per common share equals net income (loss) divided by
weighted average common shares outstanding  during the period.  Diluted earnings
per common share equals net income divided by the sum of weighted average common
shares  outstanding  during the period,  adjusted for the effects of potentially
dilutive  securities.  The Company's basic and diluted per share amounts are the
same since the Company  had losses in all  periods  and the assumed  exercise of
stock options and warrants prior to January 31, 2007 would be anti-dilutive. The
number of outstanding  options and warrants that could dilute earnings per share
in future  periods was  20,889,417  and 16,199,993 at January 31, 2007 and 2006,
respectively.

3. STOCK-BASED COMPENSATION

      In December 2004, the Financial Accounting Standards Board issued SFAS No.
123(R) (revised 2004), "Share-Based Payment" ("SFAS 123(R)"), which amended SFAS
123. The new standard requires all share-based payments,  including stock option
grants to employees,  to be recognized as an operating  expense in the statement
of operations. The cost is recognized over the requisite service period based on
fair values  measured  on the date of grant.  The  Company  adopted  SFAS 123(R)
effective August 1, 2005 using the modified prospective method and, accordingly,
prior period  amounts  have not been  restated.  Under the modified  prospective
method,  the fair value of all new stock options  issued after July 31, 2005 and
the unamortized  fair value of unvested  outstanding  stock options at August 1,
2005 are  recognized as expense as services are rendered.  The Company  recorded
the following stock based  compensation  expense for employees under SFAS 123(R)
based on the fair value of stock options.

<TABLE>
<CAPTION>
                                                Three Months Ended          Six Months Ended
                                                    January 31,                January 31,
                                                    -----------                -----------
                                                 2007       2006           2007           2006
                                                 ----       ----           ----           ----
                                                        (As restated)                 (As restated)
                                                        -------------                 -------------
<S>                                         <C>          <C>            <C>            <C>
        Compensation expense                $ 476,212    $  463,309     $1,056,893     $  811,054
        Basic and diluted loss per
         common share                       $    0.01    $     0.01     $     0.02     $     0.02
</TABLE>

      The fair value of the stock options at the grant date was estimated  using
the Black-Scholes option pricing model based on the weighted-average assumptions
as noted  in the  following  table.  The  risk-free  interest  rate for  periods
approximating  the  expected  life of the  option is based on the U.S.  Treasury
yield curve in effect at the time of grant.  The expected stock price volatility
is based on historical  volatility of the Company's  stock price.  For post July
31,  2005  grants,  the  expected  term  until  exercise  is  derived  using the
"simplified"  method as  allowed  under the  provisions  of the  Securities  and
Exchange


                                       8
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

3. STOCK-BASED COMPENSATION, (continued)

Commission's Staff Accounting Bulletin No. 107, "Disclosures about Fair Value of
Financial  Instruments"  and represents the period of time that options  granted
are expected to be outstanding.  As of January 31, 2007, there was approximately
$2,080,000 of total  unrecognized  compensation cost related to unvested options
granted that is expected to be recognized over a weighted average period of 1.18
years.  The total intrinsic value of options  exercised by employees  during the
six  months  ended  January  31,  2007 and 2006 was  approximately  $68,000  and
$121,000, respectively.

<TABLE>
<CAPTION>
                                                Three Months Ended          Six Months Ended
                                                    January 31,                January 31,
                                                    -----------                -----------
                                                2007          2006         2007          2006
                                                ----          ----         ----          ----
<S>                                            <C>            <C>        <C>            <C>
        Expected dividend yield                    0%           --            0%            0%
        Risk-free interest rate                 4.73%           --         4.69%         4.47%
        Expected stock price volatility        109.0%           --       110.59%        84.79%
        Expected term (years)                   5.31            --         5.57          5.86
</TABLE>

      The following  table  summarizes the stock option  activity for the period
August 1, 2006 to January 31, 2007:

                                                                  Weighted
                                             Stock Options    Average Exercise
                                              Outstanding     Price Per Share
                                              -----------     ---------------

        Balance August 1, 2006                   3,830,350         $   3.10
          Granted                                  960,000             1.49
          Exercised                                (84,000)            0.62
          Expired                                  (25,000)            1.96
          Forfeited                               (325,000)            1.78
                                                 ---------
        Balance January 31, 2007                 4,356,350             2.90
                                                 =========
        Exercisable as of January 31, 2007       2,764,383             3.01
                                                 =========

      The  weighted  average   contractual  term  of  options   outstanding  and
exercisable  at  January  31,  2007 is 5.69 and 4.07  years,  respectively.  The
weighted  average fair value of options  issued  during the three and six months
ended January 31, 2007 is $1.31 and $1.24 per share,  respectively and $1.27 per
share for the three and six months ended January 31, 2006.

      Shares,  warrants  and options  issued to  non-employees  for services are
accounted  for in  accordance  with SFAS 123(R) and  Emerging  Issues Task Force
Issue No. 96-18 ("EITF  96-18"),  "Accounting  for Equity  Instruments  that are
Issued to Other Than  Employees  for  Acquiring or In  Conjunction  with Selling
Goods or Services". The fair value of such securities is recorded in expense and
additional  paid-in capital in stockholders'  equity over the applicable service
periods  using  variable  accounting  through the vesting date based on the fair
value of the securities at the end of each period or the vesting date.


                                       9
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

4. LOAN RECEIVABLE, RELATED PARTY

      Amounts due from the Company's Chief Executive  Officer totaling  $175,633
at January 31, 2007 and $170,870 at July 31, 2006, are classified as a long-term
asset in loan receivable, related party as the Company does not expect repayment
of these  amounts  within one year.  In each of the six months ended January 31,
2007 and 2006,  the Company  accrued 8% interest in the amount of  approximately
$4,800 on the unpaid principal balance.

5. CAPITAL STOCK

      During the quarter ended October 31, 2006, the Company issued an aggregate
of 169,240  shares of its common  stock upon the  exercise of warrants and stock
options by unrelated  parties and employees at per share exercise prices ranging
from $0.49 to $1.50. The Company  realized  aggregate gross proceeds of $180,250
from these exercises.

      During the quarter ended January 31, 2007, the Company issued an aggregate
of 645,000 shares of its common stock upon the exercise of warrants by unrelated
parties at per share exercise  prices  ranging from $0.60 to $1.50.  The Company
realized aggregate gross proceeds of $672,500 from these exercises.

      During the quarter ended January 31, 2007, the Company issued an aggregate
of 130,000 ten-year stock options to various  consultants for services rendered.
The options  vested  immediately  and have an exercise price of $1.71 per share.
The Company recorded a total of $176,800 of non-cash expense for these options.

      During the six months ended January 31, 2007,  the Company  recorded under
EITF 96-18, an aggregate total of $7,025 of non-cash  expense for options issued
to consultants during the fiscal years 2006 and 2005.

6. SALE OF NET OPERATING LOSS CARRYFORWARDS

      New Jersey has enacted legislation permitting certain corporations located
in New Jersey to sell a portion of their state tax loss  carryforwards and state
research and  development  credits,  or "net operating loss  carryforwards",  in
order to obtain tax  benefits.  For the state  fiscal year 2007 (July 1, 2006 to
June 30, 2007), the Company had approximately  $2,338,000 of total available net
operating loss carryforwards  that were saleable,  of which New Jersey permitted
the  Company to sell  approximately  $574,000.  In  December  2006,  the Company
received  approximately  $510,000 from the sale of the $574,000 of net operating
loss  carryforwards,  which was  recognized  as a tax benefit for the six months
ended January 31, 2007.

      For the state  fiscal  year  2006  (July 1,  2005 to June 30,  2006),  the
Company had  approximately  $1,903,000 of total  available  net  operating  loss
carryforwards  that were saleable;  of which New Jersey permitted the Company to
sell   approximately   $356,000.   In  December  2005,   the  Company   received
approximately  $317,000  from the sale of the  $356,000  of net  operating  loss
carryforwards,  which was  recognized  as a tax benefit for the six months ended
January 31, 2006.


                                       10
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

6. SALE OF NET OPERATING LOSS CARRYFORWARDS, (continued)

      If still  available under New Jersey law, the Company will attempt to sell
the remaining $1,764,000 of its net operating loss carryforwards between July 1,
2007 and June 30,  2008  (state  fiscal  year  2008).  This  amount,  which is a
carryover of the Company's remaining net operating loss carryforwards from state
fiscal year 2007, may increase if the Company  incurs  additional net losses and
research and development  credits during state fiscal year 2008. The Company can
not  estimate,  however,  what  percentage  of its saleable net  operating  loss
carryforwards New Jersey will permit it to sell, how much money will be received
in connection with the sale, if any, if the Company will be able to find a buyer
for its net operating loss carryforwards or if such funds will be available in a
timely manner.

7. COMMITMENTS AND CONTINGENCIES

      On July 23,  1991,  the Board of Directors  authorized  the Company to pay
Kuslima Shogen, the Company's CEO, an amount equal to 15% of any gross royalties
which  may be paid to the  Company  from  any  license(s)  with  respect  to the
Company's  principal  product,  ONCONASE(R),  or any other products derived from
amphibian  source  extract,  produced either as a natural,  synthesized,  and/or
genetically  engineered  drug for which the  Company is the owner or co-owner of
the patents,  or acquires such rights in the future,  for a period not to exceed
the life of the patents. If the Company  manufactures and markets its own drugs,
then the Company will pay an amount equal to 5% of gross sales from any products
sold during the life of the  patents.  On April 16,  2001,  this  agreement  was
amended and  clarified to provide that Ms.  Shogen would receive the 15% royalty
payment relating to licensees or 5% of net sales relating to sales but not both,
unless the Company and the licensee both market the licensed product.

      The Company has product liability  insurance  coverage for clinical trials
in the U.S. Additionally, the Company also maintains product liability insurance
in Europe,  in Australia and in Romania.  No product  liability claims have been
filed against the Company.  If a claim arises and the Company is found liable in
an amount that  significantly  exceeds the policy limits, it may have a material
adverse  effect upon the  financial  condition  and results of operations of the
Company.

8. RESTATEMENT OF UNAUDITED QUARTERLY FINANCIAL DATA

      As previously reported in the Form 10-K for the fiscal year ended July 31,
2006, in connection with its audit of the Company's financial statements for the
fiscal year ended July 31, 2006,  the Company's  independent  registered  public
accounting  firm brought to the attention of the Company's  management  that the
Company's  estimate of the impact of forfeitures on non-cash  compensation  cost
was, as a  percentage,  significantly  higher than the  historical  rate of such
pre-vesting  forfeitures  and that the  true-up of the value of options  vesting
during the reporting  period was not recorded.  After reviewing the matter,  the
Company's  management  agreed to calculate the forfeiture  rate using  primarily
historical experience and record the value of the options that vested during the
reporting period. The original computation had understated non-cash compensation
costs  and net  losses  for the three and six  month  periods  in the  Company's
unaudited  Condensed  Financial  Statements  included  in the Form  10-Q for the
quarterly period ended January 31, 2006. The Company's  management believes that
the adjustments to the amounts of non-cash  compensation expense in the affected
three  and six month  periods  are not  material  and that the Form 10-Q for the
quarterly period ended January 31, 2006 does not require refiling.


                                       11
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

8. RESTATEMENT OF UNAUDITED QUARTERLY FINANCIAL DATA, (continued)

      Although  management  believes that the changes in the affected  three and
six month periods were not material,  the Company is presenting certain restated
unaudited statement of operations information.  Presented in the following table
are the affected  expenses,  the total costs and expenses,  the net loss and the
loss per basic and diluted common share as originally  reported and the restated
amounts for the affected periods.

<TABLE>
<CAPTION>
                                                           Three Months Ended              Six Months Ended
                                                            January 31, 2006               January 31, 2006
                                                            ----------------               ----------------
                                                      As Originally                   As Originally
                                                        Reported       As Restated      Reported       As Restated
                                                      -------------    -----------    -------------    -----------
<S>                                                   <C>              <C>            <C>              <C>
            Statement of Operations:
            ------------------------
            Research and development                  $   1,430,000    $ 1,501,000    $   2,589,000    $ 2,723,000
            General and administrative                      880,000        967,000        1,470,000      1,633,000
                                                      -------------    -----------    -------------    -----------
            Total costs and expenses                  $   2,310,000    $ 2,468,000    $   4,059,000    $ 4,356,000
            Net loss                                     (2,286,000)    (2,444,000)      (3,686,000)    (3,983,000)
            Loss per basic and diluted common share   $       (0.06)   $     (0.07)   $       (0.10)   $     (0.11)
</TABLE>


                                       12
<PAGE>


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

      Information  herein  contains,  in  addition  to  historical  information,
forward-looking statements that involve risks and uncertainties. All statements,
other than  statements of  historical  fact,  regarding our financial  position,
potential,  business  strategy,  plans and objectives for future  operations are
"forward-looking  statements."  These statements are commonly  identified by the
use  of  forward-looking   terms  and  phrases  as  "anticipates,"   "believes,"
"estimates,"  "expects,"  "intends," "may," "seeks,"  "should," or "will' or the
negative thereof or other variations  thereon or comparable  terminology,  or by
discussions of strategy. We cannot assure you that the future results covered by
these forward-looking statements will be achieved. The matters set forth in Part
I, Item 1A. "Risk  Factors" in our annual report on Form 10-K,  filed on October
16, 2006, constitute  cautionary  statements  identifying important factors with
respect  to  these  forward-looking  statements,  including  certain  risks  and
uncertainties,  that could cause actual results to vary  significantly  from the
future  results  indicated in these  forward-looking  statements.  Other factors
could also cause actual results to differ  significantly from the future results
indicated  in these  forward-looking  statements.  There  have been no  material
changes to the  discussion  of risk factors  included in our most recent  annual
report on Form 10-K.

Overview

      We are a biopharmaceutical  company engaged in the research,  development,
and   commercialization  of  drugs  for  life   threatening-diseases,   such  as
mesothelioma  and cancer.  Our  corporate  strategy is to become a leader in the
discovery,  development,  and  commercialization  of novel ribonuclease  (RNase)
therapeutics for cancer and other  life-threatening  diseases. As of January 31,
2007,  we had 16 full  time  employees  who  conducted  all  administrative  and
research and development operations at our facility in Bloomfield, NJ.

      Since our  inception  in 1981,  we have  devoted the vast  majority of our
resources  to the  research  and  development  of  ONCONASE(R),  our  lead  drug
candidate,  as well as other  related drug  candidates.  In recent years we have
focused  our  resources  towards  the  completion  of the  clinical  program for
ONCONASE(R) in patients  suffering from unresectable,  or inoperable,  malignant
mesothelioma  ("UMM").  We have incurred  losses since inception and we have not
received  Food  and  Drug  Administration  ("FDA")  approval  of any of our drug
candidates.  We expect to continue to incur losses for the foreseeable future as
we  continue  our  research  and  development  activities,   which  include  the
sponsorship of human clinical trials for our drug candidates.  Until we are able
to consistently  generate revenue through the sale of drug or non-drug products,
we  anticipate  that  we  will  be  required  to  fund  the  development  of our
pre-clinical  compounds  and drug product  candidates  primarily by other means,
including,  but not limited to, licensing the development  rights to some of our
drug  candidates to third parties,  collaborating  with third parties to develop
our drug candidates, or selling Company issued securities.

      During our fiscal  second  quarter  ended  January 31, 2007,  management's
efforts were focused on the  continued  enrollment of patients in our Phase IIIb
clinical  trial  for  ONCONASE(R)  and  preparations  for a  potential  New Drug
Application  to be filed later in 2007,  preparing for and conducting our Annual
Meeting of  Shareholders,  and making some changes to our  management  team.  We
appointed Mr.  Lawrence A. Kenyon as our new  Executive  Vice  President,  Chief
Financial Officer and Corporate  Secretary effective January 16, 2007 to replace
Mr. Robert D. Love upon his retirement.  Additionally,  on January 31, 2007, Dr.
David Sidransky,  a member of our Board of Directors was appointed Vice Chairman
and Lead  Independent  Director in recognition of his  contributions to date and
his increased  commitment  to providing  expertise and guidance to our Board and
management team.


                                       13
<PAGE>

      In January 2007,  ONCONASE(R)  was granted orphan drug  designation by the
U.S. Food and Drug Administration, or FDA. Orphan drug designation permits us to
be  awarded  seven  years  of  marketing  exclusivity  for  ONCONASE(R)  for the
malignant mesothelioma  indication upon FDA approval for this indication.  Other
benefits  for which we are  eligible  with the orphan drug  designation  include
protocol  assistance by the FDA in the  preparation  of a dossier that will meet
regulatory  requirements,  tax credits,  research and development grant funding,
and  reduced  filing  fees  for  the  marketing  application.   Previously,  our
ONCONASE(R) development program received Fast Track Designation from the FDA for
the  treatment  of  malignant   mesothelioma   patients.  We  continue  to  have
discussions  with the FDA to establish  mutually  agreed upon parameters for the
New Drug  Application,  or NDA, to obtain  marketing  approval for  ONCONASE(R),
assuming  the  Phase  III  clinical   trial  for  the   treatment  of  malignant
mesothelioma yields favorable results.

      We also have previously  received an Orphan Medicinal Product  Designation
for  ONCONASE(R)  from the  European  Agency  for the  Evaluation  of  Medicinal
Products,  or EMEA,  as well as Orphan  Drug  Designation  for  ONCONASE(R)  for
malignant  mesothelioma in Australia from the Therapeutics Goods Administration,
or TGA. Orphan drug  designation from these agencies  provides  benefits such as
marketing exclusivity, reduced filing fees and regulatory guidance.

      Almost all of the  approximately  $58,310,000 of research and  development
expenses we have incurred since our inception has gone toward the development of
ONCONASE(R)  and related drug  candidates.  For the six months ended January 31,
2007 and the fiscal  years  2006,  2005 and 2004 our  research  and  development
expenses were approximately $3,043,000,  $5,230,000,  $5,082,000 and $3,353,000,
respectively,  almost all of which were used for the  development of ONCONASE(R)
and related drug  candidates.  ONCONASE(R)  is  currently  in an  international,
centrally  randomized,  confirmatory  Phase IIIb registration  trial in patients
suffering from UMM. The primary endpoint of the trial is overall  survival.  The
first  interim  analysis  results  based  on one  third of the  required  events
(deaths) of the study, which evaluates the efficacy,  safety and tolerability of
the  combination of ONCONASE(R) + doxorubicin as compared to doxorubicin  alone,
have been reported.  The overall median survival time (MST) demonstrated a trend
favoring the  ONCONASE(R)  +  doxorubicin  treatment  group (12 months) over the
doxorubicin  group (10 months).  A two month  improvement in median survival had
previously  been observed in the Treatment  Target Group (TTG) (n=104)  analysis
from the  previously  completed  Phase III single  agent study that  favored the
ONCONASE(R)  over  doxorubicin  treatments  (11.6  months vs. 9.6  months).  The
Company's Phase IIIb confirmatory  registration  trial was designed based on the
conclusions  drawn from the TTG  analysis  but powered to reach a  statistically
significant  difference in MST between the  ONCONASE(R) + doxorubicin  treatment
group and the doxorubicin  treatment group at 316 events. The interim data which
represented only one third of the planned number of events was sufficient for us
to continue the trial as planned. At this time, we cannot predict with certainty
the timing of the  occurrence  of the required  number of deaths,  but currently
estimate that this will occur in the third calendar  quarter of 2007. The timing
of when we will be able to file for marketing registrations in the US, and other
countries is contingent on achieving the required  number of deaths in the Phase
IIIb clinical trial and achieving  statistically  significant  results  favoring
treatment with the combination of ONCONASE(R) + doxorubicin  over treatment with
doxorubicin alone. We are currently submitting the various components of the NDA
for  ONCONASE(R)  as they are  completed,  beginning  in February  2007 with our
submission  of the  Chemistry,  Manufacturing  and Controls  (CMC)  section,  in
anticipation  of  potentially  achieving  favorable  results  from the Phase III
trial.

      We fund the research and  development of our products  primarily from cash
receipts  resulting  from  the sale of our  equity  securities  and  convertible
debentures in registered offerings and private placements. Additionally, we have
also raised capital through other debt financings,  the sale of our tax benefits
and research  products,  interest  income and financing  received from our Chief
Executive Officer.


                                       14
<PAGE>

During the six months  ended  January  31,  2007,  we received  net  proceeds of
approximately  $1,332,000 from warrant and stock options  exercises and the sale
of a portion of our State of New Jersey net operating loss carryforwards.  These
proceeds  will be used to  support  the  completion  of our Phase IIIb trial for
ONCONASE(R),  the  anticipated  filing of an NDA of  ONCONASE(R)  for  malignant
mesothelioma,  assuming  satisfactory  results from the ongoing  clinical trial,
clinical  trials for ONCONASE(R) in cancer  indications,  and the development of
other pipeline products.

Results of Operations

Three and six month periods ended January 31, 2007 and 2006

      Revenues.  We are a development  stage company as defined in the Financial
Accounting  Standards Board's Statement of Financial Accounting Standards No. 7,
"Accounting  and Reporting by Development  Stage  Enterprises."  We are devoting
substantially  all of our present  efforts to  establishing  a new  business and
developing  new drug  products.  Our planned  principal  operations of marketing
and/or  licensing new drugs have not  commenced  and,  accordingly,  we have not
derived any  significant  revenue  from these  operations.  We focus most of our
productive and financial resources on the development of ONCONASE(R) and as such
we have not had any sales in the three and six month  periods  ended January 31,
2007 and 2006.  For the three and six month periods ended January 31, 2007,  our
investment  income was $99,000 and $222,000  compared to $24,000 and $56,000 for
the same period last year,  an increase of $75,000 and  $166,000,  respectively.
These increases were due to higher balances of cash and cash equivalents on hand
for the three and six month  periods  ended  January 31, 2007 as compared to the
same periods in 2006.

      Research and Development.  Research and development  expense for the three
months  ended  January  31,  2007 was  $1,473,000  compared  to  $1,501,000  (as
restated) for the same period in 2006, a decrease of approximately  $28,000,  or
2%. The decrease was primarily  related to decreased  expenses of  approximately
$182,000 incurred in support of our potential ONCONASE(R) NDA filing as a result
of drug registration batches conducted in the fiscal second quarter of 2006, but
not in  2007,  as  well as a  reduction  in  employee  compensation  expense  of
approximately $59,000 due to a reduction in stock based compensation expenses in
2007. These decreases were offset by increased expenses of approximately $91,000
for  pre-clinical   research  for  various  potential  drug  candidates  we  are
investigating, approximately $72,000 in expenses incurred from our ongoing Phase
I/II ONCONASE(R)  clinical trials that initiated in June 2005 and November 2006,
and an  increase  of  approximately  $57,000  in  expenses  for our  Phase  IIIb
ONCONASE(R)  clinical trial due primarily to increased data management  expenses
incurred as the trial nears completion.

      Research and development expense for the six months ended January 31, 2007
was $3,043,000 compared to $2,723,000 (as restated) for the same period in 2006,
an increase of  approximately  $320,000,  or 12%.  The  increase  was  primarily
related to increased  expenses of approximately  $323,000 incurred for our Phase
IIIb  ONCONASE(R)  clinical  trial due  primarily to increased  data  management
expenses  incurred  as the trial  nears  completion,  approximately  $102,000 in
expenses  incurred from our ongoing Phase I/II ONCONASE(R)  clinical trials that
initiated  in June 2005 and  November  2006,  and an increase  of  approximately
$66,000 for pre-clinical  research for various  potential drug candidates we are
investigating.   These   increases   were  offset  by   decreased   expenses  of
approximately  $144,000  incurred in support of our  potential  ONCONASE(R)  NDA
filing as a result of drug  registration  batches conducted in the fiscal second
quarter  of  2006,  but not in 2007,  as well as a  reduction  of  approximately
$31,000 in patent and trademark  related expenses  incurred in the first half of
fiscal 2007.


                                       15
<PAGE>

      General and  Administrative.  General and  administrative  expense for the
three  months  ended  January 31, 2007 was  $1,062,000  compared to $967,000 (as
restated) for the same period in 2006, an increase of approximately  $95,000, or
10%.  This  increase was due  primarily to an increase in employee  compensation
expense of approximately  $152,000, of which approximately  $111,000 was related
to share-based compensation, as well as increased investor relations expenses of
approximately  $108,000  resulting  from our use of an investor  relations  firm
beginning in fiscal 2007. These increases in general and administrative expenses
were partially offset by a reduction in legal expenses of approximately $128,000
and reduced accounting and Sarbanes-Oxley  compliance  expenses of approximately
$32,000 for the first three months of fiscal 2007 as compared to the first three
months of fiscal 2006.

      General and  administrative  expense for the six months ended  January 31,
2007 was $1,988,000  compared to $1,633,000 (as restated) for the same period in
2006,  an increase of  $355,000,  or 22%.  This  increase was  primarily  due to
increase   in   compensation   expense  of   approximately   $357,000  of  which
approximately  $290,000  is  related  to  share-based  compensation,  as well as
increased investor  relations expenses of approximately  $111,000 resulting from
our use of an investor  relations  firm  beginning in fiscal 2007 and  increased
miscellaneous general office expenses of approximately  $35,000. These increases
in general and  administrative  expenses were partially offset by a reduction in
legal expenses of approximately $168,000 for the first six months of fiscal 2007
as compared to the first six months of fiscal 2006.

      Income  Taxes.  New  Jersey has  enacted  legislation  permitting  certain
corporations  located in New  Jersey to sell a portion  of their  state tax loss
carryforwards and state research and development  credits, or net operating loss
carryforwards,  in order to obtain tax benefits.  For the state fiscal year 2007
(July 1,  2006 to June  30,  2007),  we had  approximately  $2,338,000  of total
available net operating loss carryforwards that qualified for sale, of which New
Jersey  permitted us to sell  approximately  $574,000.  Based on an agreement we
entered into with the state, we received approximately $510,000 from the sale of
the $574,000 of net operating loss carryforwards,  which was recognized as a tax
benefit in the three month period ended January 31, 2007.

      For the state  fiscal  year 2006 (July 1, 2005 to June 30,  2006),  we had
approximately  $1,903,000 of total  available net operating  loss  carryforwards
that qualified for sale; of which New Jersey permitted us to sell  approximately
$356,000. In December 2005, we received  approximately $317,000 from the sale of
the $356,000 of net operating loss  carryforwards,  which we recognized as a tax
benefit in the three month period ended October 31, 2005.

      If still  available  under New  Jersey  law,  we will  attempt to sell the
remaining  $1,764,000 of our net operating  loss  carryforwards  between July 1,
2007 and June 30,  2008  (state  fiscal  year  2008).  This  amount,  which is a
carryover of our remaining net operating  loss  carryforwards  from state fiscal
year 2007,  may  increase if we incur  additional  net losses and  research  and
development credits during state fiscal year 2008. We can not estimate, however,
what  percentage of our net operating loss  carryforwards  that qualify for sale
New Jersey will permit us to sell,  how much money we will receive in connection
with the sale,  if any, if we will be able to find a buyer for our net operating
loss carryforwards or if such funds will be available in a timely manner.

      Net  Loss.  We have  incurred  net  losses  during  each  year  since  our
inception.  The net  loss  for the  three  months  ended  January  31,  2007 was
$1,925,000  as compared to  $2,444,000  (as  restated)  for the same period last
year, a decrease of $519,000.  The net loss for the six months ended January 31,
2007 was  $4,298,000 as compared to $3,983,000 (as restated) for the same period
last  year,  an  increase  of  $315,000.  The  cumulative  loss from the date of
inception,  August 24, 1981 to January 31, 2007,  amounted to $87,615,000.  Such
losses are attributable to the fact that we are still in the development


                                       16
<PAGE>

stage and, accordingly,  have not derived sufficient revenues from operations to
offset our development stage expenses.

Liquidity and Capital Resources

      We have financed our operations since inception primarily through the sale
of our equity securities and convertible  debentures in registered offerings and
private  placements.  Additionally,  we have also raised  capital  through  debt
financings,  the  sale of our net  operating  loss  carryforwards  and  research
products,  interest  income  and  financing  received  from our Chief  Executive
Officer.  Until and unless our  operations  generate  significant  revenues,  we
expect to continue  to fund  operations  primarily  from  equity  financing  and
through the exercise of outstanding options and warrants and the sale of our tax
benefits. There can be no assurance that we will be able to raise the capital we
need on terms which are acceptable, if at all.

      As of January 31, 2007, we had  approximately  $8,024,000 in cash and cash
equivalents,  and we  believe  this  level  of  cash  and  cash  equivalents  is
sufficient to fund our  operations  through our fiscal year ending July 31, 2008
based on our expected level of expenditures.  Our cash and cash equivalents will
be used  for the  completion  of our  Phase  IIIb  trial  for  ONCONASE(R),  the
anticipated filing of an NDA of ONCONASE(R) for malignant mesothelioma, assuming
satisfactory  results from the ongoing  clinical  trial,  funding of ongoing and
additional  clinical  trials  for  ONCONASE(R)  in cancer  indications,  and the
development of other pipeline products.

      We will continue to incur costs in  conjunction  with our U.S. and foreign
registrations  for  marketing  approval  of  ONCONASE(R).  We are  currently  in
discussions  with  potential   strategic   alliance   partners  to  further  the
development  and  marketing of  ONCONASE(R)  and other  related  products in our
pipeline. However, we cannot be sure that any such alliances will materialize.

      The market  price of our Common  Stock is  volatile,  and the price of the
stock could be  materially  affected  due to  numerous  factors,  including  the
marketing approval, or lack of approval, of ONCONASE(R) by the FDA.

Off-balance Sheet Arrangements

      As part of our ongoing  business,  we do not  participate in  transactions
that  generate   relationships  with  unconsolidated   entities,   or  financial
partnerships,  such as  entities  often  referred  to as  structured  finance or
variable  interest  entities or VIE, which would have been  established  for the
purpose of facilitating  off-balance sheet  arrangements or other  contractually
narrow or limited  purposes.  As of January 31, 2007, we are not involved in any
unconsolidated VIE transactions.

Contractual Obligations and Commercial Commitments

      Our outstanding  contractual obligations relate to our equipment operating
lease.  Since July 31, 2006,  there has been no material  change with respect to
our  contractual  obligations  as  disclosed  in  "Management's  Discussion  and
Analysis  of  Financial  Condition  and  Results  of  Operations  -  Contractual
Obligations  and Commercial  Commitments"  in our annual report on Form 10-K for
the fiscal year ended July 31, 2006.


                                       17
<PAGE>

Critical Accounting Policies and Estimates

      Critical  accounting policies are those that involve subjective or complex
judgments,  often as a result of the need to make estimates. The following areas
all  require  the use of  judgments  and  estimates:  research  and  development
expenses,  accounting  for  stock-based  compensation,  accounting  for warrants
issued with  convertible  debt and deferred  income taxes.  Estimates in each of
these areas are based on historical  experience and various  assumptions that we
believe are  appropriate.  Actual results may differ from these  estimates.  Our
accounting  practices are discussed in more detail in  "Management's  Discussion
and Analysis of Financial  Condition  and Results of  Operations"  and Note 1 of
"Notes to Consolidated  Financial  Statements" in our Annual Report on Form 10-K
for the year ended July 31, 2006.

Recently Issued Accounting Standards

      In December 2006, the Financial Accounting Standards Board ("FASB") issued
a FASB Staff  position  ("FSP")  Emerging  Issues Task Force  ("EITF") Issue No.
00-19-2" Accounting for Registration Payment Arrangements" ("FSP 00-19-2") which
addresses an issuer's  accounting for  registration  payment  arrangements.  FSP
00-19-2  specifies  that the  contingent  obligation to make future  payments or
otherwise  transfer  consideration  under a  registration  payment  arrangement,
whether issued as a separate agreement or included as a provision of a financial
instrument or other agreement,  should be separately  recognized and measured in
accordance with FASB Statement No.5 "Accounting for Contingencies". The guidance
in FSP  00-19-2  amends FASB  Statements  No. 133,  "Accounting  for  Derivative
Instruments  and  Hedging  Activities",  and  No.150,  "Accounting  for  Certain
Financial  Instruments with Characteristics of both Liabilities and Equity", and
FASB Interpretation No.45,  "Guarantor's  Accounting and Disclosure Requirements
for  Guarantees,  Including  Indirect  Guarantees of  Indebtedness of Others" to
include scope exceptions for registration payment  arrangements.  FSP 00-19-2 is
effective  immediately for registration  payment  arrangements and the financial
instruments  subject to those  arrangements  that are  entered  into or modified
subsequent  to the  date of  issue  of FSP  00-19-2.  For  registration  payment
arrangements and financial  instruments  subject to those arrangements that were
entered  into  prior to the  issuance  of FSP  00-19-2,  this is  effective  for
financial  statements issued for fiscal years beginning after December 15, 2006,
and interim  periods  within  those fiscal  years.  The Company has analyzed the
provisions of FSP 00-19-2 and determined  that it will not have an effect on the
Company's financial statements.

      In  June  2006,   the   Financial   Accounting   Standards   Board  issued
Interpretation No. 48 ("FIN 48"),  "Accounting for Uncertainty in Income Taxes -
an  Interpretation  of FASB  Statement No. 109." FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in a company's  financial  statements
in accordance  with  Statement No. 109,  "Accounting  for Income  Taxes." FIN 48
prescribes a recognition  threshold and  measurement  of a tax position taken or
expected to be taken in a company's tax return. The provisions of FIN 48 will be
effective for our fiscal year ended July 31, 2008.  We are currently  evaluating
the  impact  of the  adoption  of FIN 48 will  have,  if any,  on our  financial
statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      As of January 31, 2007, we were exposed to market risks, primarily changes
in U.S.  interest  rates.  As of January 31,  2007,  we held total cash and cash
equivalents of  approximately  $8,024,000.  All cash equivalents have a maturity
less than 90 days.  Declines  in  interest  rates  over time  would  reduce  our
interest  income from our  investments.  Based upon our balance of cash and cash
equivalents  as of January 31, 2007, a decrease in interest  rates of 1.0% would
cause a corresponding  decrease in our annual  interest income of  approximately
$80,000.


                                       18
<PAGE>

Item 4. Controls And Procedures

      (a) Evaluation of disclosure controls and procedures.

      Under  the  supervision  and with  the  participation  of our  management,
including our Chief Executive Officer and Chief Financial Officer,  we evaluated
the  effectiveness  of the design and operation of our "disclosure  controls and
procedures" (as defined in Rule 13a-15(e)  under the Securities  Exchange Act of
1934 ("the  Exchange Act") as of January 31, 2007, the end of the period covered
by this report.  Based on this evaluation,  the Chief Executive  Officer and the
Chief Financial Officer have concluded,  as a result of the material weakness in
internal  control over  financial  reporting  discussed  below,  our  disclosure
controls and procedures were not effective to ensure that  information  required
to be disclosed by us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized, accumulated,  communicated and reported, within
the time periods specified in the SEC's rules and forms.

      Management's internal control assessment as of July 31, 2006, as discussed
in Item 9A, "Controls and Procedures", of our Annual Report on Form 10-K for the
year ended July 31, 2006 filed with the SEC on October 16,  2006,  identified  a
material  weakness due to lack of personnel with financial  reporting  expertise
sufficient to properly record and report  non-routine  and complex  transactions
and  accounting  pronouncements.  During the quarter ended January 31, 2007, our
management is treating the material weakness identified above very seriously and
in  response,  plans to  continue  to review and make  necessary  changes to the
overall design of our control  environment.  Management has revised its policies
and  procedures  for properly  recording and reporting  non-routine  and complex
transactions and accounting  pronouncements  to ensure that all reasonable steps
will be taken to correct  this  material  weakness.  As part of the  remediation
process,  we have  retained  third party  advisors to assist us in recording and
reporting  non-routine  and complex  transactions  and  interpreting  accounting
pronouncements.  The deficiency will not be considered  remediated until the new
internal  controls  are  operational  for a period  of time and are  tested  and
management has concluded that the controls are operating effectively.

      (b) Changes in internal controls.

      There  have  been no  changes  in our  internal  controls  over  financial
reporting  during the  quarter  ended  January  31,  2007,  other than  controls
established  to  remediate  the material  weakness  described  above,  that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

      None

Item 1A. Risk Factors

      There have been no  material  changes to the  discussion  of risk  factors
included in our most recent annual report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

      (a) Recent Sales of Unregistered Securities


                                       19
<PAGE>

      The following  transactions were exempt from  registrations  under Section
4(2) of the  Securities  Act of 1933,  as amended.  The net proceeds  from these
transactions will be used for general corporate purposes.

      During the quarter ended January 31, 2007, we issued an aggregate total of
95,000 shares of common stock upon the exercise of warrants at an exercise price
of $1.50 per share by unrelated  parties,  which  resulted in gross  proceeds of
$142,500 to us. We have previously  registered the resale of these shares by the
stockholders on a Form S-3 registration statement.

Item 3. Defaults Upon Senior Securities

      None

Item 4. Submission of Matters to a Vote of Security Holders

      (a)   An annual meeting of stockholders was held on January 31, 2007.

      (b)   All of our current  directors,  Kuslima Shogen,  John P. Brancaccio,
            Stephen K.  Carter,  Donald R.  Conklin,  James J.  Loughlin,  David
            Sidransky and Paul M. Weiss, were elected at the annual meeting.

      (c)   The matters voted upon at the annual  meeting and the results of the
            voting,  including broker non-votes where applicable,  are set forth
            below:

            (i)   For the election of directors

<TABLE>
<CAPTION>
                             Number of Shares of
                             Common Stock Voted     Number of Shares of    Number of Broker
           Director                  For           Common Stock Withheld      Non-Votes
<S>                              <C>                      <C>                      <C>
       Kuslima Shogen            39,768,151                 960,303                0
       John P. Brancaccio        38,949,936               1,778,518                0
       Stephen K. Carter         39,541,551               1,186,903                0
       Donald R. Conklin         39,021,876               1,706,578                0
       James J. Loughlin         38,974,936               1,753,518                0
       David Sidransky           39,138,351               1,590,103                0
       Paul M. Weiss             38,955,336               1,773,118                0
</TABLE>

            (ii)  Proposal  to  ratify  the  appointment  of  J.H.  Cohn  LLP as
                  Alfacell's  independent  registered public accounting firm for
                  the year ending July 31, 2007.

<TABLE>
<CAPTION>
       Number of Shares of   Number of Shares of     Number of Shares of            `
       Common Stock Voted    Common Stock Voted    Common which Abstained   Number of Broker
               For                 Against              from Voting            Non-Votes
<S>                                 <C>                       <C>                   <C>
           40,109,317               601,078                   18,059                0
</TABLE>


                                       20
<PAGE>

Item 5. Other Information

      None

Item 6. Exhibits

      Exhibits (numbered in accordance with Item 601 of Regulation S-K).

<TABLE>
<CAPTION>
                                                                               Exhibit No. or
Exhibit                                                                       Incorporation by
  No.                                Item Title                                   Reference
  ---                                ----------                                   ---------
<S>      <C>                                                                           <C>
10.34    Form of Stock Option Agreement for Executive Officers under the
         Company's 2004 Stock Incentive Plan                                           +

10.35    Offer letter agreement with Lawrence A. Kenyon dated January 16,
         2007                                                                          +

10.36    Summary of the Company's Non-Employee Director Compensation Policy            +

10.37    Royalty Agreement between the Company and Kuslima Shogen, dated July
         24, 1991 and Amendment to Royalty Agreement, dated April 16, 2001             +

31.1     Certification of Principal Executive Officer pursuant to Section 302
         of the Sarbanes-Oxley Act of 2002                                             +

31.2     Certification of Principal Financial Officer pursuant to Section 302
         of the Sarbanes-Oxley Act of 2002                                             +

32.1     Certification Principal Executive Officer pursuant to Section 906 of
         the Sarbanes-Oxley Act of 2002                                                +

32.2     Certification Principal Financial Officer pursuant to Section 906 of
         the Sarbanes-Oxley Act of 2002                                                +
</TABLE>

+ Filed herewith.


                                       21
<PAGE>

                                   SIGNATURES

           Pursuant to the requirements of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                              ALFACELL CORPORATION
                                              --------------------
                                                  (Registrant)


March 12, 2007                                /s/ Lawrence A. Kenyon
                                              ----------------------
                                              Chief Financial Officer
                                              (Principal Accounting Officer and
                                              Principal Financial Officer)


                                       22